Cost at the pump of fuel: high prices here to stay

The price of petroleum products has continued to rise in recent years in Mauritius. The cost of a liter of petrol at the pump has climbed by around Rs 20 since 2021, while that of diesel has jumped by more than Rs 25. Is the recent reduction of 4% per liter of petrol a good omen for 2024?

The Petroleum Pricing Committee (PPC) held its first meeting of 2024 on January 27. The committee verified the calculation of the retail prices of Mogas and Gas Oil, as provided for in Regulation 8 of the Consumer Protection (Control of Price of Petroleum Products) Regulations 2011. The recommendation was made that the price per liter of petrol goes from Rs 69 to Rs 66.20 and that of diesel is maintained at Rs 63.95.

Despite what was claimed by the State Trading Corporation (STC), oil does not seem to be a product whose price in Mauritius fluctuates in step with international shocks. Would it be an illusion to hope that prices in Mauritius will return to the previous level? Megh Pillay, former director of the State Trading Corporation (STC), believes that it mainly depends on political will. According to him, the price of fuel in Mauritius has nothing to do with the elements which should have been decisive such as freight, the rupee-dollar exchange rate or even the world price of oil. “Prices at the pump in Mauritius depend greatly on taxation. Petroleum products have always been a source of revenue for the government and the question does not arise. The PPC is a rubber stamp, because the price of fuel in Mauritius is a political decision,” he explains.

After estimates of around Rs 4.41 billion in 2022-23, the government intends to generate Rs 4.55 billion in revenue in 2023-24 from taxation on petroleum products according to its forecasts. Economist Bhavish Jugurnath explains that according to the State Trading Corporation (STC), all taxes, duties and levies represent 40 to 55% of the retail price of gasoline and diesel in Mauritius. “Undeniably, this form of taxation constitutes a very important source of revenue for the government. These taxes are used to maintain and guarantee a reasonable price for household gas as well as for basic foodstuffs such as rice and flour,” he says. For example, he said, subsidies on rice ration, flour and household gas represent more than Rs 1.2 billion. “I think that if other forms of taxation are not examined, this tax will remain a crucial source of revenue,” says the economist. However, he is of the view that in the long term, with the dominance of electric vehicles in the market, the government will have to find alternative means.

PSA, again and again

The PPC also examined the total deficit of Rs 4.5 billion in the price stabilization account (PSA) of diesel which results in a total delay of around Rs 4.2 billion in the price stabilization accounts. The gasoline PSA shows a surplus of Rs 300 million as of January 27, 2024. According to Megh Pillay, with the January 2023 amendment, the STC can lower the price as soon as the PSA is no longer in deficit. However, following this logic, the price of diesel could not be reduced as long as its PSA is in deficit. And according to Megh Pillay, reversing the trend will take years and years, because the world price of diesel is not weakening. For him, the government would have an interest in removing this deficit from the price structure and treating it as a debt of the STC repayable in the long term by a “Debt Recovery” levy, of around Rs 2.20 per liter. “The STC can, for this purpose, retain this amount by lowering the diesel contribution from Rs 7.20 to Rs 5 per liter for gas, flour and rice subsidies. A similar formula was put in place to pay the hedging debt. To the extent that the Minister of Finance identifies another source of funds to make up for the shortfall, the STC could even accelerate the competition of parameters favoring a drop in prices,” he argues.

Rajiv Servansingh, Managing Director of State Trading Corporation (STC)

It will take a long time for the diesel PSA deficit to be reversed.”

The Price Stabilization Account (PSA) for gasoline reveals a surplus of Rs 300 million as of January 27, 2024. Did the increase in the pump price of gasoline in Mauritius contribute to increasing the surplus by Rs 200 million compared to the Rs 100 million recorded on October 6, 2023?

It is not the high price in Mauritius that made this possible, but the price at which we bought gasoline on the international market. Its cost on the world market had fallen for two months, which led to a surplus in the PSA of this product. It has since increased again. We cannot reduce the price if the PSA is in deficit and that is why we have managed to lower the price of gasoline at the pump.

The diesel fund is in deficit of Rs 4.5 billion as of January 27, 2024. How long will it take to turn things around?

It will take a long time for this deficit situation in the diesel PSA to be reversed. We cannot predict what will happen to the global market in the meantime. That said, the price of diesel at the pump remained unchanged on several occasions preceding the PPC meeting on January 27. The committee had, however, suggested increasing the price in Mauritius due to the cost of importation. The status quo at Rs 54.55 for a few months in 2022-23 was not without consequences on the PSA deficit for diesel.

The price of a liter of gasoline at the pump was Rs 50.70 in July 2021 and that of diesel at Rs 37.30. Can we hope to return to this level this year?

Since oil is a non-renewable product, we can expect prices to return to normal. Global production of petroleum products is falling while demand is moving in the opposite direction. This has an impact on the world price.

The contribution to the Covid-19 Solidarity Fund and the contribution to financing the cost of Covid-19 vaccines on pump prices had caused a lot of ink to flow. These are no longer part of the pricing structure. Can we expect other taxes to be removed?

These two contributions, which were actually part of the price structure, were removed some time later. The decision is up to the government whether to withdraw or add a contribution. That said, I don't think other contributions are in danger of being removed.

Suttyhudeo Tengur, APEC President

Products won't see an immediate decline, but at least they aren't expected to increase either.”

Fuel is an essential energy source in the modern world and is the lifeblood of economies. This is what the president of the Association for Environmental and Consumer Protection declares. “People and businesses depend on fuel for their daily lives, production and commerce. Fluctuations in fuel prices therefore have significant effects on economies,” he explains. Furthermore, it highlights that the role of fuel in key sectors such as transport, industrial production and agriculture further amplifies the impact of fluctuations in energy costs on economic stability. “When oil prices fall, it becomes less expensive to fill up, both for households and businesses. So, it really reduces costs for transportation-oriented sectors, like airlines and trucking, but it has a direct impact on the domestic oil industry,” he argues.

With the drop in gasoline prices, Suttyhudeo Tengur believes that products may not see an immediate decrease, but at least they are not expected to increase either. “It's not really a surprise given that the price of goods in other sectors has not changed despite the drop in gasoline prices,” he admits. Obviously, he says, it will now cost less to go to the supermarket, but prices for milk, cheese, flour and other products remain above average. “Local production will not be affected by the fall in the price of oil because the minimum wage, the depreciation of our rupee against the dollar, the increase in freight due to the war between Russia and Ukraine and the instability in the Red Sea will cost more raw materials,” he maintains.